Overview of recent and upcoming tax changes affecting Canadian businesses and individuals, including CPP2 contributions, the cancelled capital gains rate increase, digital services tax, and clean economy investment credits.
In force21 March 2025
corporate tax
Capital Gains Inclusion Rate — Proposed Increase Cancelled
The proposed increase to the capital gains inclusion rate from 1/2 to 2/3 was cancelled on 21 March 2025. The rate remains at 1/2 (50%) for all taxpayers.
What changed and what to do
What changed
Budget 2024 announced an increase to the capital gains inclusion rate from 50% to 66.7% (two-thirds) for gains realised after 25 June 2024. The government confirmed on 21 March 2025 that this proposal was abandoned entirely and would not proceed. The inclusion rate has returned to and remains at 50% for all taxpayers, including corporations and individuals.
Who it affects
Corporations with capital gains
Individuals with investment property or share disposals
Trusts realising capital gains
Business owners selling shares or assets
What to do
No action required — the rate remains at 50% inclusion. If you deferred asset disposals in anticipation of this change, review your plans as the lower rate is now confirmed permanent. Consult your advisor if you made decisions based on the proposed higher rate.
Small Business Deduction — Active Business Limit at CAD 500,000
The Small Business Deduction (SBD) remains available on the first CAD 500,000 of active business income at a 9% federal rate, with a passive income phase-out unchanged.
What changed and what to do
What changed
The SBD active business limit remains CAD 500,000, giving Canadian-controlled private corporations (CCPCs) a 9% federal corporate tax rate on qualifying income versus the general 15% rate. The passive income phase-out rule remains in effect: the SBD limit is reduced by CAD 5 for every CAD 1 of adjusted aggregate investment income above CAD 50,000, eliminating the SBD entirely at CAD 150,000 of passive income.
Who it affects
Canadian-controlled private corporations (CCPCs)
Small and medium-sized incorporated businesses
Corporations with significant investment portfolios
What to do
Monitor passive income levels annually. If your corporation earns investment income approaching CAD 50,000, consider strategies such as paying down shareholder loans, accelerating capital dividends, or investing through a holding company. Keep active and passive income streams clearly separated in your bookkeeping.
A second tier of Canada Pension Plan contributions (CPP2) was introduced in January 2024, requiring additional 4% contributions on earnings between YMPE and YAMPE.
What changed and what to do
What changed
CPP2 added a second earnings ceiling above the Year's Maximum Pensionable Earnings (YMPE). In 2025, employees and employers each contribute 4% on earnings between the YMPE (CAD 73,200) and the Year's Additional Maximum Pensionable Earnings (YAMPE, CAD 81,900) — a maximum annual CPP2 contribution of CAD 342 each. Self-employed individuals pay both the employee and employer share, for a maximum of CAD 684. This is separate from and on top of existing CPP1 contributions.
Who it affects
Employees earning above CAD 73,200 annually
Employers with higher-earning employees
Self-employed individuals earning above the YMPE
Payroll administrators
What to do
Ensure your payroll system has been updated to calculate CPP2 separately from CPP1. Both contributions appear on T4 slips in separate boxes. Self-employed individuals must account for the full CPP2 contribution when calculating quarterly instalment payments. Review your payroll software for 2025 YMPE and YAMPE thresholds.
Digital Services Tax (DST) — 3% on Canadian Digital Revenue
Canada's Digital Services Tax imposes a 3% tax on Canadian digital services revenues for large multinationals, applied retroactively from 1 January 2022.
What changed and what to do
What changed
The Digital Services Tax Act came into force on 28 June 2024, imposing a 3% tax on Canadian-sourced revenues from online marketplaces, social media, online advertising, and user data services. It applies to entities with global revenues exceeding CAD 1 billion and Canadian digital services revenues exceeding CAD 20 million in a calendar year. Critically, the tax was applied retroactively to revenues earned from 1 January 2022, with the first returns covering 2022-2023 combined due in June 2025.
Who it affects
Large multinational digital platforms
Online marketplace operators
Social media companies with Canadian users
Digital advertising businesses
Companies monetising Canadian user data
What to do
Assess whether your group meets both revenue thresholds. If applicable, ensure you have registered with the CRA and filed the combined 2022-2023 return. For ongoing compliance, track Canadian digital services revenues separately from other revenue streams. Seek specialist tax advice given the cross-border complexity and US trade implications.
A suite of refundable investment tax credits for clean technology, clean electricity, carbon capture, clean hydrogen, and clean technology manufacturing was introduced across Budget 2023 and 2024.
What changed and what to do
What changed
Five major investment tax credits were enacted: Clean Technology ITC (30% on eligible clean energy equipment), Clean Electricity ITC (15% for eligible electricity generation and storage), Carbon Capture Utilisation and Storage ITC (37.5% to 60% depending on storage method), Clean Hydrogen ITC (15% to 40% based on carbon intensity), and Clean Technology Manufacturing ITC (30% on eligible machinery and equipment). Most credits require compliance with prevailing wage conditions to receive the full rate, with a reduced rate (typically 10 percentage points lower) if conditions are not met.
Who it affects
Businesses investing in renewable energy equipment
Manufacturers of clean technology products
Companies with carbon capture projects
Clean hydrogen producers
Businesses building eligible electricity infrastructure
What to do
Identify which credits apply to planned capital investments before committing expenditure. Document prevailing wage compliance carefully — payroll records must demonstrate rates meet the prescribed thresholds. File the relevant schedules with your corporate return and consider engaging a specialist advisor for larger projects given the credit stacking opportunities.